First Take: Internet taxation shapes Amazon-eBay battle

May 6, 2013
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Internet retailer Amazon spent about a decade fighting the collection of state sales taxes for online sales. The company has now switched sides, leaving eBay to lobby against the bill, called the Marketplace Fairness Act. / Paul Sakuma, AP

by Jon Swartz, USA TODAY

by Jon Swartz, USA TODAY

SAN FRANCISCO - Internet taxation took a step closer to reality today, underscoring the high stakes it holds for tech's two biggest e-commerce combatants. The Senate passed the Marketplace Fairness Act, 69-27.

Conceivably, the fate of the legislation - it must pass the Republican-controlled House and receive the signature of President Obama, a supporter, to become law - could tilt the playing field between Amazon.com and eBay.

The bill would require online retailers with sales of at least $1 million to collect sales taxes for the states where they ship goods.

Billions are at stake. Online sales rang up $225.5 billion last year, according to the U.S. Department of Commerce.

Amazon, which until recently was dead-set against a national online sales tax, now embraces it as it looks to expand its physical operations across the USA, paving the way for faster, same-day delivery of goods.

eBay, Amazon's rival, argues the tax would hinder its sellers who do more than $1 million in out-of-state sales annually. In a letter to eBay sellers, CEO John Donahoe suggested the law should exempt any business with fewer than 50 employees or that make less than $10 million a year on out-of-state sales.

Although a national sales tax makes it easier for online players to manage taxes, eBay's largest sellers could take a hit, ultimately impacting eBay, says Greg Girard, an e-commerce analyst at IDC Retail Insights.

At the same time, Amazon might use regulation as "a form of suppressing competition" as an industry incumbent, says Eric Goldman, an Internet law professor at Santa Clara University.

"Amazon's view is, we can afford it, and others can't," Goldman says. Taxation "jacks up others' costs and becomes a barrier to entry to competitors."